Question: 1. Why do we focus on cash flows as opposed to net income in capital budgeting? 2. Problems 6 & 8 at the end of

1. Why do we focus on cash flows as opposed to net income in capital budgeting?

2. Problems 6 & 8 at the end of chapter 8: Show calculations for both (Profitability Index and Payback Period). The data for the calculations is on Page 263. Is the project with the highest profitability index also the one with the highest NPV? Is the project with the shortest payback period also the one with the highest NPV? (Assume an 11% discount rate.) Which criterion should you use, payback or NPV? Why?

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